Gold Price to break out or break down from here?

It was a quiet day today in the Gold Market.  The gold price as represented by the GLD ETF did not manage to make much of any statement today.  Indeed the volume was also very light and similar to last Friday’s light volume.

Now here is the dilemma. Are we going to break down or break out in Gold ?  The key for me anyway is the March 6th swing high of 92.95.  We need to get over there with some conviction.  So the question is how soon can such a thing occur if at all?  Right now it may be too tough to call.  I think we will see a big move coming out of this recent 2 week consolidation but for me it is too early to say it will be to the upside.

There are a few different crosscurrents right now.  For starters I could make the interpretation that this declining volume is a bullish development, especially the speed with which it has declined.  One could make the interpretation that the especially light volume today is an indication of last remaining sellers being squeezed out.

Then we also have what looks to be a possible 3 rising valleys pattern as shown on the chart to the left (drawn in red).  Now the 3rd valley seems to be forming now and the whole pattern would be confirmed on a breakout with confirmed volume above the peak of the 3rd valley.

This last valley that has formed is also characteristic of a final small handle of sellers from the original old high of March 17th, 2008.  Certainly it was to be expected that we get some sort of residual selling from left over sellers in that area.  Again, the declining volume trend on this handles formation is quite bullish.  I have seen handles like this in the past that also had such a dramatic drop in volume initiate a breakout with high volume seemingly out of nowhere.

Also bullish at the moment is that we continue to trade and hold above the 50 day simple moving average.  The 50 day moving average remains in a bullish stance above the 200 day moving average.  We are also holding support of 900 in the price of gold so far at least.  The low volume characteristic we have seen in recent days seems to suggest we will continue to hold this 900 support.

If we are able to get some upside tomorrow it would certainly be interesting to see what happens to price on a move above the March 6th swing high. It may trigger a short covering panic and cause a quick acceleration in price.

Downside possibilities could be the 85 area on the GLD or near the 200 day moving average.

So for now we will just have to wait and see what the gold price tells us.  I have to say my bias is to the upside, but do not have enough conviction yet based on this setup.  It is also worth noting that the next upwards advance in the price of gold is likely to take out the all time highs.  I do not see another consolidation at the 1030 level again.  It is time for gold to face the music.  It has been given 3 chances now to overtake this all time high, and I would say now is about the best chance it has as any.  Assuming a move into the all time high, there should be significant follow through buying just based on that technical event alone.

One last point that is interesting, tomorrow is March 17th, 2009.  That is exactly one full year from the previous exact peak that occurred in the gold price on March 17th, 2008. Significance? Don’t know, we shall find out tomorrow…